Friday, January 25, 2008

Whoa there. Crash is a strong word. There's going to be a definitive slowdown for a while. I would think the NAND market gets markedly worse between now and the fall ramp into the holiday build. I would expect prices will be significantly lower by the time September rolls around, so I'm not saying get out your buy tickets. You have to remember that as prices of memory decline, it usually means companies put more memory inside devices. It's a good thing if you're a consumer... not so good if you're in the business of selling the chips.

I think that in 2010 you'll start to see solid state drives take hold as price points become more attractive -- I want to see 80gb drives under $100. That's down quite a bit from here -- the best price I can find for a 32gb NAND drive is about $350 right now -- which puts an 80gb drive at about $875, so you're talking down 85% per gb of pain before the market is somewhere reasonable.

Guidance for next quarter's orders was slightly better than consensus, which I guess was a lot better than the fear, but they guided to a flat/down 1st half outlook versus prior touchy-feely guidance of a flat first half 2008.

DRAM pricing stinks. The mp3 player market is in seasonal weakness, which hurts NAND units. They're going to see customers pull back on memory spending worse than they're saying. Stock is up a couple pre-market. I'd make short sales.

Synaptics briefly became a proxy for Apple in that they were designed into a couple of iPod models (not the nano or the iPhone/iTouch) and they make a nifty touch screen product that's incorporated into LG's Voyager phone offered by Verizon -- an iPhonish product.

After peaking at $60 in November, Synaptics bled a straight line to the high 20s before rebounding to 31 and reporting earnings. A number of analysts defended it on the way down, suggesting rumors of market share losses in the notebook market to Alps were unfounded.

Last night, Synaptics reported an in line number and guided well below street consensus for next quarter.

Russ Knittel, Synaptics' Chief Financial Officer, added, "It is clear thatissues concerning the economy are impacting the general business outlook andthe behavior of our customers. Given the 34% decline in our backlog exitingthe December quarter to $37.5 million and recent reductions in customers'forecasts, our current revenue outlook for the March quarter is in the rangeof $76 to $82 million, representing an 18% to 27% increase over the comparableperiod last year. Looking out to the June quarter, we currently anticipatesequential revenue growth in the range of 11% to 19% relative to the mid-pointof our March quarter outlook. Despite uncertainty in the market, Synaptics ison track to exceed the 25-30% revenue growth outlook for fiscal 2008 that weprovided entering the fiscal year, along with record profitability."

So backlog down 34% sequentially, revenue outlook of ~79mm with consensus of 85mm and guiding to roughly 85-92mm for June with street pretty much right there. They stated almost all of the incremental cutback to their outlook was related to the mp3 market, which has severe seasonality, especially when Apple yaks a quarter. They didn't confirm or deny the market share losses in notebook touchpads but they acknowledged a more cautious customer environment overall.

The stock responded by plunging to $24. I'm kind of surprised. I'd put it more in the low/mid 30s but I was appalled when it was at $50 and got run over being short it up to $60 so maybe I'm wrong again.

Baidu is one of those stocks that attracts day traders like fly paper. It regularly has 5% moves. So far this month, the stock has traded in a range of 240 to 400, last sale around 322, no, 323, uh I mean 324. In the last 6 days, it's traded over 10 million shares a day. The float (outstanding shares that are eligible for free trading) is 33 million shares. Did the entire company change hands twice in the last week? No. Baidu is a speculative, volatile vehicle of the moment.

This morning it's marked up 5%, presumably on the better Microsoft numbers. I would venture to say there's no correlation between Microsoft selling a lot of xboxes and Vista/Office 2007 copies and Baidu's success in the search market in China. I would venture that nothing has changed in their business, despite the fact that the stock has gyrated between elation and terror all month.

What's really happened over the last 3 months has been multiple compression. The easy and good times are foreseen to be coming to an end. Maybe Baidu doesn't belong at 324, er, 325, uh 327 but it probably never belonged at 400 either.

I lied, by the way. Baidu doesn't mean asylum in Chinese. It's a reference to a poem from the Song Dynasty. But Baidu is a waystation for lunatics nonetheless.

Not the kind of environment producers spend a lot of money on equipment to build more product. I'd also add that Apple is the single largest buyer of NAND in the marketplace and they're certainly not going to be buying more after the bad iPod numbers a couple of days ago.

Tough to bet against a good management team but I think you have to worry about the effect of a slowing DRAM and NAND environment on a company with 80% of their sales into the memory capex market. Semicaps are tricky because they trade with a long tail -- investors play them off their outlook 9-12 months out, not on the current numbers. Current numbers are probably fine. It's the outlook a year from now that worries me. NAND and DRAM pricing have been horrible this quarter.

Xbox has been very strong which drives a lot of the top line. Halo 3 is the best selling game on the platform. Though the late Q price cut on the Sony Playstation 3 probably drove some market share towards Sony, I doubt it was enough to offset the Xbox momentum.

Vista, despite being kinda crappy overall, is a higher margin operating system than previous cycles... and the alternative is, uh, Windows XP. Further, exchange server is in the midst of an upgrade cycle due to increasing demands on remote storage of email My mailbox is huge. I'm sure yours is too. Now multiply that by a few hundred million. From what I understand, the newer exchange server version has better archiving and storage retrieval.